I am the retired co-founder of Dimensional Fund Advisors. A committed Missouri philanthropist, I serve as president of the Show Me Institute, a state think-tank for limited government, and am president and chairman of the Chess Club and Scholastic Center of Saint Louis. To learn more, please visit my website at www.rexsinquefield.org.

The Democrats Are Starting To Budge On Pro-Growth Tax Cuts

Admittedly, it would be a far stretch to claim a sea change in the Democratic Party’s tax reform agenda, but 2014 has brought with it two indicators reflecting a meaningful shift toward pro-growth state tax policies. The first can be found in news reports last week about the Maryland governor’s race. Historically, Maryland has been a stronghold of Democratic politics. The Maryland Democratic Party is one of the world’s oldest continuously operating political organizations. In fact, Baltimore was host to the first six Democratic National Conventions.

But, the tide is definitely turning in the Old Line State. Three years ago, there was a dramatic shift in majority power at the county level from blue to red, and now Democrats hold control in only eight of twenty-three county governments.

Sensing growing support of sound tax policies, gubernatorial candidate (and current Maryland Attorney General) Doug Gansler, who is lagging behind front-runner Lieutenant Governor Anthony Brown, has made a bold move to distinguish himself as the pro-growth Democratic candidate. Recognizing that Maryland’s high tax policies are contributing to the state’s anemic real gross domestic product (GDP) growth of 0.0% in 2013, Gansler has proposed a cut in corporate incomes taxes from 8.25% to 6%. According to the Tax Foundation, in 2011, Maryland ranked 15th highest among states with corporate income taxes. Gansler wisely identified his state’s penalty on job creators as impeding employment growth and tax revenues.

U.S. Bureau of Economic Analysis

Of course, there are several factors that impact a state’s economy and potential for growth. In An Inquiry into the Nature and Causes of the Wealth of States, my co-authors and I dig deep into quantitative data that factors in a variety of leading economic metrics, including tax policy, population migration, employment, and output from all 50 states.

Our in-depth review of Maryland’s policies provides hard evidence that ill-informed leadership has set the state on its failing trajectory. A true measure of a state’s economic vitality can be found in the net in-migration or out-migration of adjusted gross income (AGI); in the last two decades, the state has lost $7.8 billion in AGI.

An even closer look at the data is provided by my co-author Travis H. Brown in his book How Money Walks, which maps the movement of taxable income from state to state based on annual IRS tax migration data. Every 60 seconds, the state of Maryland loses $768 in adjusted gross income. Clearly, this unsustainable path is causing real harm to the state’s overall economy and the welfare of every Maryland family.

Gansler is not the only Democrat whose tax policy positions are being shaped by a preponderance of evidence. In my own home state of Missouri, Attorney General Chris Koster, currently the only Democratic contender for the state’s highest office, is convinced that high state and local tax burdens impede economic prosperity. In an opinion piece published in the St. Louis Post-Dispatch, Koster boldly urged policymakers to focus on “improving Missouri’s overall business climate” by cutting the income tax burden placed on individuals and businesses.

During the 2000s, Missouri ranked 48th in economic growth. Koster claimed that the timing is perfect for Missouri to make policy moves that will place our state in the top-ten list of most business friendly states, writing: “With state revenues estimated to increase between $346 million and $429 million in fiscal year 2015, the current legislative session is the right time to both increase Missouri’s commitment to existing priorities, like education, and cut taxes.” (Fortunately, as reported in this Forbes.com column, the state legislature agreed with Koster and made history last month by overriding Governor Jay Nixon’s veto of our state’s first income tax cut in nearly 100 years.)

Democrat Attorneys General Koster and Gansler should be congratulated on their recognition of the fact that high income taxes drive away employment and wealth-creation opportunities. Their bold positions may give them the political edge that they need and, if they are successful, will serve their constituents well. It may just be that they will find themselves as true leaders in a new age of enlightenment in the Democratic Party.

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